3 key steps to minimizing crypto trading risks
Lottery winners are more likely to apply for bankruptcy than the rest of us. Holding on to your money, it turns out, is a lot tougher than getting it in the first place. This is why capital preservation is key to any profession that deals with money, from pro poker to crypto trading.
The bad news is that some risk of losing money always exists. The good news is that by the time you finish this article, you’ll understand 3 effective ways to minimize risks when trading crypto. The first is to…
1. Always have a plan
The biggest risk in trading doesn’t come from bad assets, depreciating coins, or cybercriminals. The biggest risk in trading is the human factor. A single bad decision, a single all-in trade, a single overextension can result in a wipeout for even the best traders.
That’s why the old adage of “plan the trade and trade the plan” is the first law of effective risk management. If you want to make money in the long run, you can’t treat trading like gambling. You can’t base what you’re doing on in-the-moment feelings and emotions.
Instead, you need a plan: a system of trading rules that takes as many decisions as possible out of the equation. A trading system includes things like your desired risk, the kinds of coins you want to buy, how you react when you lose money, and many other things.
If you don’t have a plan yet, don’t fret; Adara Academy has a free video series that helps you make your first one. If you do have a plan, move on to our next risk management tip.
2. Know how much you can afford to lose
Every trader loses from time to time. This is fine. What isn’t fine is losing so much money that you can no longer trade effectively. To this end, it’s important to know just how much money you’re willing to lose per trade.
Numerically, you need to understand your maximum acceptable risk. This is a percentage that defines the amount of money you’re ready to lose per trade. For example, if you have $100,000 in fiat money and are prepared to lose $1,000 per trade, your maximum risk is 1%.
Numbers aside, it’s good to define your general approach to risk. Some traders find that high-risk, high-profit trades are a good match for their strategy and personality. Others discover the opposite: that low-risk positions work better for them.
There’s no right answer; what matters is that you have a clear idea of how much risk you can take on, both per trade and in the long run.
3. Get Ready to Execute Your System
Most traders — even the ones who always lose — have a solid trading system. They’re not hard to come by. So why does the average trader fail consistently, even after buying or copying a more advanced trader’s strategy to a T?
It’s because they get distracted, or emotional, or tempted, and make trades outside the system. Some ways to make sure this doesn’t happen to you are:
- Practicing with Adara’s platform’s test/demo mode so you know exactly what to do when it’s time to make a trade.
- By trading in a quiet work environment where you’re not distracted or tempted to multi-task.
- Refusing to trade at times when your judgment may be impaired; for example, after a big loss or win.
There are other examples. Some traders switch off their phones to make sure they’re locked in when they’re working; others go to coffee shops to get lost in background noise. What matters is that you put yourself in the conditions that help you execute with precision.
Of course, these rules are just the tip of the proverbial iceberg. If you’d like to get a full step-by-step guide to minimizing risks as a crypto trader check out Adara Academy as of February 1st, 2019.
It’s a learning resource created by some of the brightest traders, teachers, and programmers in crypto today — and it’s 100% free. Just follow our account and you’ll be the first to know when you can get full access to all the trading knowledge you need to succeed in this exciting niche.
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